Still Time for Year-end Financial Moves

BURLESON, TX — The holiday season is always a busy time of year, so you’re probably pretty busy. But it is important to take some time now to evaluate year-end financial moves that may be beneficial in preparing for your financial future.
Which year-end moves should you consider? You will want to talk to your financial advisor and tax and legal professionals first, but here are a few ideas to get you started:

• Boost your IRA contributions. You have until April 15, 2011, to fully fund your IRA for the 2010 tax year, but the sooner you finish with your 2010 contribution, the quicker you can get started on your 2011 contribution — and the earlier in the year you fund your IRA, the more time you give your account the opportunity to grow.

• Put more money into college savings plans. If you have a 529 college savings plan for yourself or someone else, consider putting more money in before year-end. You can gift up to $13,000 ($26,000 per married couple) per person per year without gift tax consequences. However, this must be accomplished by year-end.

• Be generous. If you’ve been thinking of making charitable gifts, don’t put them off any longer. As long as you make a donation to a qualified charity before the year ends, you can claim a deduction on your 2010 tax return. For example, if you donate $100 to a charitable group (either a religious organization or one that has received 501(c) (3) status from the Internal Revenue Service), and you’re in the 25-percent tax bracket, you can deduct $100 (with a tax benefit of $25) when you file your taxes for 2010, providing, of course, that you itemize. If you donate stocks or other types of assets, you may also be able to save on capital gains taxes, because it will be the charity, not you, that eventually sells those assets.

• Sell your “losers.” If you own investments that have lost value since you purchased them, you can sell them before 2010 ends and then use the tax loss to offset capital gains you may have earned in other investments. If you don’t have any capital gains, you can use up to $3,000 of your tax losses to offset other ordinary income. If your loss is greater than $3,000, you can “carry over” the excess and deduct it from your taxes in future years. However, if you then want to repurchase the investment you sold, you’ll need to wait at least 31 days to avoid violating the IRS’ “wash sale” rules.

• Take capital gains. In 2011, the tax rate on long-term capital gains is scheduled to increase to 20 percent for most investors, up from the 15 percent rate it’s been the last several years. If you have stocks or other appreciated assets that you were thinking of selling in the near future, you might want to do so before the year comes to a close. However, it’s generally not a good idea to make investment decisions strictly because of tax consequences. If your appreciated assets are still a part of your overall financial strategy, you may be better off holding them for the long term, even with a higher capital gains rate.

Considering these moves before the year ends may help you better prepare to address your financial picture in 2011.

Written by Lynn H. Bates Jr., an Edward Jones representative based in Burleson.